You Only Live Twice
By MD Publishing, July 14, 2011
In 2013, the Okon family will celebrate its 100th year of collecting, recycling and reprocessing scrap metal. At its Dallas, Texas-based headquarters, Okon Metals diverts more than 10,000 tons of metal from landfills per month.
Through its container service, the company processes materials from a variety of industries, including demolition, manufacturing and increasingly, health care.
“We have multiple profit centers, and we don’t count on all of them hitting at the same time,” says Louis Okon, the guy with his name on the building, “but one of the things that we do very well happens to be the medical recycling.”
Recycling is part of every business, Okon says, whether it’s an office replacing its furniture, or a restaurant that redeems soft drink cans for the nickel rebate. The component value of the metals themselves may even sometimes exceed the value of their current form depending upon commodity prices.
“When prices are higher, it makes the recycling process much easier because there’s much more money on the table,” he says. “If the metals prices or the intrinsic value of the medical equipment also rises, it makes the deals doable.
“As our customers and the industry matures and recycling becomes more of a hot topic, people find out that it’s not only a viable option but also possibly a very lucrative one,” Okon says.
Such sustainability is a question of income as well as a question of output.
As the medical device industry discovers just how many more dollars are to be earned from a single piece of equipment after its original sale – whether in refurbishment, reprocessing, reuse or recycling – it can realize a unique opportunity to not only extend that revenue stream, but also to clean up after itself in the process.
Okon Metals often helps facilitate the closure of a deal with an influx of cash that smooths the transition process for health care centers from one machine to the next, or helps pay for the deinstallation of another. When customers know the approximate value of the scrap they’re discarding, they can factor that credit back into the value of the transaction.
“We’re the instrument that often makes the deal happen,” Okon says. “We’re usually brought into the process when companies are bidding to deinstall or making decisions to put in a new [piece of equipment].”
Even when introducing the opportunity of earning some cash from the recycling of raw materials, questions of sustainability surface. A common hurdle to the process is the price of transportation – most commonly overland fossil fuel costs – which can scotch a deal if it exceeds the value of the recyclable material.
“At the end of the day, it comes down to dollars and cents,” Okon says, “and if it doesn’t make sense dollar-wise, then you’re relying on the customer’s environmental and safety conscience.” However, Okon says, sometimes cutting a $500 corner on freight costs can burn an institution to the tune of hundreds of thousands in clean-ups or lawsuits. That’s where the second benefit of recycling comes in: safe, effective handling and disposal.
“People shipping that material to us have the comfort that it will be handled properly because we use a specialized decommissioning process,” Okon says.
Yet even legal considerations can afford an opportunity for the second-use market to affect the outcome of the process. If a seller wants an entire unit destroyed, the company obliges. But when the occasion arises to harvest usable parts, Okon says, “Our preference is certainly to put them back onto the market.”
“We work real closely with our suppliers, some of whom are parts brokers, and with our customers to make it a mutually beneficial relationship,” he says. “We tell our customers to look out for certain parts or certain items and we work out a nice, easy, mutually beneficial process to get those parts back onto the market.
“If there’s something that’s able to have a second life, then that’s clearly the process,” Okon says. “If not, then that second life will be when the metals are remade into new products, be they medical or otherwise.”
Somalia or the Scrapheap
If a working device is not headed for the recyclers or a second-source market elsewhere in the U.S., donating it to a needy medical facility elsewhere in the world is often preferable to junking it outright – with some stipulations.
Diana Upton is president of IAMERS, the International Association of Medical Equipment Remarketers and Servicers. Upton says that when OEMs discard equipment that is still valuable, “it certainly isn’t helping the industry in terms of its carbon footprint.”
“Obviously if there’s life left in the equipment, there’s a market for that somewhere on the planet, even if it’s not in the United States,” she says. “It all helps from a recycling perspective.”
Yet despite the second life many devices find in the developing world, Upton isn’t sold on the wholesale rate of return of such initiatives. If equipment is donated without the infrastructure, parts or technicians to maintain it, she asks, then for how long is its trip to the junk yard really being staved off?
“To some degree, the old line of ‘no good deed goes unpunished’ is a distinct possibility when you’re doing that kind of thing,” Upton says.
“You may have to walk away from it because, for practical purposes, there’s nobody in a given location that can service that piece of equipment,” she says. “It’s one thing for me to give you something, but if you can’t maintain it, you cannot handle it, then who takes the responsibility of it?”
Furthermore, the international differences in the global economic and health care markets limit donor opportunities in the majority of the developed world, she says.
“When people come to me and they say that IAMERS should spend time looking at charity opportunities for pre-owned equipment, I shake my head because I know that it’s a lot more complicated,” she says.
Ruling out questions of the quality of donated equipment, the question remains whether even a very well-run donor organization – or several – can capture enough of the volume of the device market for their reclamations to make a meaningful impact.
Charlie Whelan is director of Consulting Healthcare & Life Sciences, North America, for consulting firm Frost & Sullivan of San Antonio, Texas.
“If an organization provides 10 patient monitors to a hospital in Ukraine that they know needs 10 patient monitors, then that’s good,” Whelan says. “Meanwhile, the other thousands of monitors got dumped elsewhere. I just don’t know if charities are able to scale up to capture a significant portion of all the equipment that’s being gotten rid of and to then find enough takers on the other end.”
What Whelan views as a legitimate alternative to that donated equipment is the growing domestic medical device manufacturing industry in many of the areas typically served by donor charities.
“Will the emergence of domestic manufacturing for this medical equipment in China, Eastern Europe, Latin America, to a degree obviate the need for accepting some of these donations?” he asks. “I might be able to get some donated monitors, and they may or may not work, or I could buy some monitors from these smaller Polish or Chinese manufacturers and get something new out-of-box.”
The Chinese and Russian domestic medical equipment industries are growing quickly, Whelan says, and they’re moving into markets in other countries like India as well.
“I don’t think it’s going to have an impact in the developed world,” Whelan says, but in the developing world where brand loyalty isn’t as strong, there’s a possibility that this avenue of equipment relocation may soon be closing.
A Question of Relative Scale
As Whelan points out, there are plenty of medical devices that really don’t have a secondary market. The bulk of irretrievable medical waste includes red-bag or biohazard waste, and although there are initiatives underway to reprocess a lot of single-use devices, there’s not a lot the device market can do about former.
Although the metals in most devices are reclaimable, the industry is having a difficult time addressing its use of plastics-oriented materials, which cause environmental problems upon incineration.
“In other markets there might be a willingness to compromise for environmental benefit,” Whelan says. “Your potato chip bag might be a little crunchier-sounding than it used to be, but it’s compostable. Good for you. The medical industry has a very low tolerance for failure. Job number one is it’s got to work; any redesign can’t compromise on performance at all.”
Coupled with that fact, Whelan observes that the majority of the technological innovation in the medical device industry in the past 10 to 20 years “has been largely iterative.” When a hospital CEO in San Antonio debates whether investing in a 64-slice CT scanner is more a statement of superiority to area competitors than a move made to address quality of care, his point seems to be borne out.
“In the U.S., our demand and supply is not met exactly,” Whelan says. “We have way more supply than we have demand for these types of things, so there’s a lot more of an arms race.” On the other end of the scale, Whelan says, are hospitals that operate their existing equipment for a lot longer than they used to simply because they just don’t have the money to replace it. That money must now be recouped on the service side of the business, so these institutions take a lot more interest in the secondary market.
What it all means, he says, is that there’s just not likely a significant environmental impact to be addressed, at least in terms of tonnage, from the retirement of medical devices. “I’ve never really considered medical devices as a huge source of solid waste, particularly capital equipment,” Whelan says. “I would be less concerned about the medical waste than what’s in those devices. Have we made sure to take out anything that’s radioactive or chemically dangerous?”
“How many PET scanners are out there? A couple hundred? So what?” Whelan says. “That’s chump change in terms of contributing to our nation’s solid waste concerns. I don’t think it’s a huge issue; we can always do better, but I don’t think it’s a real big deal.”
A Collaborative Solution
Al Malouf is a Program Manager NineSigma of Cleveland, Ohio. NineSigma is a consulting think-tank staffed by trained scientists. Its clients include major corporations that want help brokering and innovating sustainability – of revenue streams, environmental impact and even entire marketplaces.
Malouf believes that one of the only ways in which the medical device industry can resolve its questions of sustainability is to broker a discussion among key players in the OEM and second-source markets. But getting everyone to come to the same table would almost presuppose an all-or-nothing proposition.
“Everyone needs to solve the problem in such a way as to benefit both sides,” he says. “Both groups lose if you can’t sell this stuff on the secondary market. [A company like NineSigma plays the role of the honest broker in the discussion], but they still have to get into the room and agree on a course of action.”
Again, whether the questions of sustainability are environmental or merely economic, they can shift from becoming questions of PR to questions of survival. OEMs acknowledge implicitly that the second-source market is a source of reclamation business for them. Second-source vendors and parts suppliers know that their business depends on original equipment making its way through the supply chain.
The key ingredient to the discussion, Malouf says, is for companies to acknowledge that ignoring the problem is not an option; that they are not going to be able to continue to grow their companies without changing the way that they’re doing things.
“You have to have a group of companies that recognize that their current course of action is no longer an option,” he says, “that their survival depends on them answering this question.” Whether the major players in this conversation will ever come to that acknowledgement – that’s the million-dollar question.